The jury is still out on this
year's tax totals, but for the 2012 tax year, the Internal Revenue Service
(IRS) paid close to $323 billion in individual tax refunds to 121 million
taxpayers. That makes the average tax refund nearly $2,700. If you are on the
receiving end of a refund like this, you may be tempted to splurge – perhaps on
a vacation, flat-screen television, new clothes or other. But before you do,
remember that this is money that you should have been receiving and using
throughout the year to pay off debt or bolster your savings. The fiscally smart move is to treat a tax refund as you would a
paycheck. That means taking one or more of these suggested actions and putting
the money to good use.

Lighten your debt load. Up to 42 percent of tax filers use their refunds to pay down
high-interest consumer debt. That is a wise decision given that credit card
debt tends to come with an average 13 percent annual percentage rate. Paying down credit card debt
reduces the amount of interest you owe and leads to a smaller minimum payment. In
addition, your credit score may improve. If your credit cards are already under
control, you can make additional payment(s) to a student loan or car loan if
you have those debts.

Shore up savings. Use your tax refund to ensure you are well protected
in the event of an unexpected emergency such as a medical crisis or job loss. Your goal should be to haveat least six-nine months of monthly expenses set aside in an
emergency fund. If your emergency fund is already robust, consider investing
your refund in your retirement savings, which may be an individual retirement
account (IRA), 401(k) or other vehicle. As a bonus, you may be able to deduct
this year's contribution from next year's income taxes.

Invest in education. Use these funds to open a 529 college savings plan or
add to an existing one (for your own child, or the child or a relative or
friend). The money saved in these accounts can be used for educational purposes
only. Another option is to sign up for continuing education courses that will
help you land a promotion (and a pay raise) or help secure a job in a
better-paying field.

Maintain your home. A tax refund can go to good use by taking care of neglected home
maintenance issues. Certain home improvements, like the installation of
energy-efficient windows and doors, can trim heating and cooling costs. In
addition, you may be able to apply federal tax credits toward next year's
taxes. Now also may be a good time to increase the value – and/or usefulness –
of your home by spending the money on more major projects like finishing a
basement.

Make an
extra mortgage payment. You can apply
additionalpayments directly to your
loan's principal. This ups the equity in your home while reducing the amount of
interest you owe on the loan. Even better, it means you will be able to pay off
the loan a little faster. As a bonus for your security, this extra money could be available to you should you ever need to borrow from your home's equity.

Tie up loose ends. Invest in life insurance if you have not already done
so. This is the best way to ensure that your spouse will be able to meet joint
financial obligations should you die. Single people
also may need life insurance. Without it, your parents or siblings could be
liable for your debts, including funeral expenses. A will is another
necessity. It helps make clear who inherits your assets upon your death
(otherwise, it is up to the state to decide). You may need to hire a lawyer to
learn about establishing trusts. Otherwise, it's also possible to draft a will
via sites like Nolo and LegalZoom.

It is
certainly more fun to get a check from Uncle Sam than to write one. However, a large refund is an indication that too much
money is being withheld from your paycheck. In essence, you are giving the
government an interest-free loan. Use the IRS Withholding Calculator to adjust your federal income tax withholding
allowances if you would rather see more in your paycheck each month than
receive such a big refund at next year's tax time.

Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.

INFORMATIONAL DISCLAIMER
The information contained on or provided through this site is intended for general consumer understanding and education only and is not intended to be and is not a substitute for professional financial or accounting advice. Always seek the advice of your accountant or other qualified personal finance advisor for answers to any related questions you may have. Use of this site and any information contained on or provided through this site is at your own risk and any information contained on or provided through this site is provided on an "as is" basis without any representations or warranties.